Rumor has it that MSI, ASUS, and other companies that will put out competing …

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Competing tablet makers are reevaluating their pricing strategy in the wake of Apple's iPad announcement, according to a rumor in the Digitimes. The article cites the usual unnamed sources in claiming that companies like ASUS and MSI had expected Apple's iPad to debut at $1,000, and were planning to undercut that price by 20 to 30 percent with their own, presumably Android-based offerings. But with the iPad base model coming in at $499—the price of a decent netbook—the companies are now going to have to compete on something besides price.

Assuming this rumor is true, and it seems completely plausible, then it confirms what a major shift in strategy the iPad is for Apple's business. Apple jealously guards its fat margins, but those margins are almost certainly taking a major hit to get the base model iPad out the door at this price point. This sacrifice is an acknowledgment by Apple that it has to go out and create a market for a device that people don't yet know they need.

The iPad's price is also another sign of just how massive an impact that the netbook has had on the business of computing. If Apple is sacrificing profits to make the iPad an alternative to the netbook as a second or third computer for mass-market use, then Apple can join Intel, Dell, HP, and other PC vendors in the list of companies that have seen their margins suffer due to the netbook's popularity.

How did they get the price so cheap?

The inevitable teardowns haven't been done yet, but even now it's hard to see how Apple will make much, if any, money on the $499 model. This being the case, it's worth considering how the company can afford to launch at this price point.

The first trick that Apple used to keep the cost down is that, as many have pointed out, the iPad left out some key hardware features and will instead charge users a nice markup on accessories designed to give those features back. Specifically, the lack of built-in USB ports and SD card support saved a few dollars per unit, and for a unit that will eventually sell in the tens of millions, that's real money. And Apple makes even more money if it can sell tens of millions of plastic USB and SD card adapters at a hefty profit.

Apple's second technique for mitigating the impact of that low price is the classic up-sell. The company is charging considerably more for the 3G and/or more storage, with the result that buyers of the higher-end models are pitching in extra money to pay for the low-end model's discount.

Finally, it's likely that Apple sees itself taking a page from the console makers' playbook by making up lost hardware revenues with content sales. Right now, prior to the advent of the HTML5 spec, which will make it much harder for Apple to take a cut of software and content distribution on the platform, Apple can afford to give away the hardware because it's taking a cut of iTunes, App Store, and iBook sales.

As Apple's iPhone OS inevitably begins to lose control of software and content distribution on the iPad to the browser, it's hard to see how it will continue to reduce the price of the device. What seems more likely is that the company will leave its pricing structure largely intact while widening its margins as unit prices decline.

They're making a metric assload off of app sales and the like. This is a basic retread of the console strategy. It will also make it very hard for MSI et al to compete as the likelihood they can be as successful with their own locked down, closed ecosystem is slim to none.

This thing has a low bare-bones launch price and profit margin for all of the reasons listed in the article. The most important one, though, is the content that they're taking a cut of. Expanding iTunes and the App store to include things like books, magazines, comic books, 780p video, etc will net them more money than the hardware itself ever possibly could, especially because it makes potential customers out of all the people who have netbooks and other "competing" hardware.

Personally, even though there's no way I'd buy an iPad, I am definitely willing to pick up content from Apple if it's WinXP-compatible, reasonably priced and free of horribly intrusive DRM - same as I use iTunes for non-DRM music.

I really don't see how $500 is such a bargain or takes it into netbook territory...

Netbooks cost $200-300 bucks, $150-250 if you get one with an ARM cpu...

These tablet-touchscreen devices don't even have keyboards... there's no reason they should cost more than $350 dollars unless touchscreens cost $350 by themselves...

Apple priced their POS at $500 because they know ebook readers and netbooks are more compelling and are trending towards the $200 price point as they merge into the same device. $500 is as close as apple can get without being questioned and getting negative press over the price.

Originally posted by btmlltt:Stop fucking felating Apple, guys. The 'real' model is going to be about $1000 if you live somewhere with sales tax. $499 is a lie.

The force of cognitive dissonance is strong with this one.

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Originally posted by Jackattak:The argument I would make is that the iPad isn't a tablet in the "tablet PC" sense. There's no interface ports except for the dock. A tablet PC nowadays has at least USB and SSD slots.

Let's not go off half-cocked with labeling the iPad as a tablet. It's an iPod Touch with a 10" screen.

So if the iPad isn't a tablet, does that mean the MacBook Air isn't a laptop? The iMac doesn't have an 8" floppy drive, I guess it isn't a computer. The iPod shuffle doesn't have a screen, I guess it isn't an MP3 player. Wow, I never realized it before, but Apple doesn't make anything!

Originally posted by Jackattak:The argument I would make is that the iPad isn't a tablet in the "tablet PC" sense. There's no interface ports except for the dock. A tablet PC nowadays has at least USB and SSD slots.

Let's not go off half-cocked with labeling the iPad as a tablet. It's an iPod Touch with a 10" screen.

The tablet PCs are also a NICHE product that very few people are actually buying. This is going for a something beyond that, and transcends the existing product category, it is likely to sell more units than all tablet-PCs combined [ever]. This is a mass-market device, and not squarely aimed at geeks looking for a PC experience.

There are other tablets that will be ARM-based (e.g. Android) and they aren't aiming to be "PC with a touchscreen" like the Windows tablets of yesterdays. That will be key to forming a new market.

Originally posted by Jackattak:The argument I would make is that the iPad isn't a tablet in the "tablet PC" sense. There's no interface ports except for the dock. A tablet PC nowadays has at least USB and SSD slots.

Let's not go off half-cocked with labeling the iPad as a tablet. It's an iPod Touch with a 10" screen.

So if the iPad isn't a tablet, does that mean the MacBook Air isn't a laptop? The iMac doesn't have an 8" floppy drive, I guess it isn't a computer. The iPod shuffle doesn't have a screen, I guess it isn't an MP3 player. Wow, I never realized it before, but Apple doesn't make anything!

Hopefully this means that Asus's Android? and Tegra2 Tablet will be cheap just like their EeePC offerings. It'll probably have wifi, SD slot and at least one USB port, plus the screen might be widescreen instead of the iPad's ridiculous 4:3 screen.

"Apple can join Intel, Dell, HP, and other PC vendors in the list of companies that have seen their margins suffer due to the netbook's popularity. "

Well, if you want to do anything real you'll still need a Laptop, and they're happy to sell you a $1000 piece of plastic or a $1300 piece of aluminum. They won't undercut that market very much, because without a real computer, your life is pretty limited with only the pad.

As for the competition, the tablet is still a device that has little to no room in most people's lives despite how they feel right now. For portable anything, the iPhone/Droid does just fine. For home use, the laptop fits that bill perfectly.

Originally posted by Jackattak:The argument I would make is that the iPad isn't a tablet in the "tablet PC" sense. There's no interface ports except for the dock. A tablet PC nowadays has at least USB and SSD slots.

Let's not go off half-cocked with labeling the iPad as a tablet. It's an iPod Touch with a 10" screen.

The tablet PCs are also a NICHE product that very few people are actually buying. This is going for a something beyond that, and transcends the existing product category, it is likely to sell more units than all tablet-PCs combined [ever]. This is a mass-market device, and not squarely aimed at geeks looking for a PC experience.

Agreed. This is a new device and is filling a niche, and I don't think that geeks or techies are its target demographic whatsoever. I think the public-at-large is the market this is targeted to. Techies and geeks want way more control over their devices, whereas the public en masse typically just want an appliance. This is where Apple has been hitting the home run, and I believe it would do my techie/geek brethren some good to realize that and stop bashing Apple so badly (since it merely makes them look stupid).

Originally posted by LavosPhoenix:Hopefully this means that Asus's Android? and Tegra2 Tablet will be cheap just like their EeePC offerings. It'll probably have wifi, SD slot and at least one USB port, plus the screen might be widescreen instead of the iPad's ridiculous 4:3 screen.

You do realise that you'll still be able to watch 16:9 movies at a very reasonable size, you'll just have bigger black bars than on the crappy screen of a netbook (which will have black bars on too)?

Originally posted by slogger:I really don't see how $500 is such a bargain or takes it into netbook territory...

A 8.9" multitouch tablet is $500.

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Netbooks cost $200-300 bucks, $150-250 if you get one with an ARM cpu...

Add $300 if you add touchscreen technology.

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These tablet-touchscreen devices don't even have keyboards... there's no reason they should cost more than $350 dollars unless touchscreens cost $350 by themselves...

I take it you didn't look then. Tablets cost $500, minimum.

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Apple priced their POS at $500 because they know ebook readers and netbooks are more compelling and are trending towards the $200 price point as they merge into the same device. $500 is as close as apple can get without being questioned and getting negative press over the price.

other tablets are already more than competitive in specs, availability of content and software and other areas. It should be simple enough to tune down the specs and get in under the higher-priced iTab models.If they can get subsidized pricing like with many netbooks, there's no way that other tablet manufacturers wouldn't be able to blow the $500 price point out of the water, with better specs and features to boot.

Of course, that begs the question of what the market for these tablets is actually like, I have a feeling that it's not as big as apple thinks it is, especially with the price point and features banging strongly into netbook territory, and already crowded and highly competitive market with much more to offer in terms of features and lower prices

The inevitable teardowns haven't been done yet, but even now it's hard to see how Apple will make much, if any, money on the $499 model. This being the case, it's worth considering how the company can afford to launch at this price point.

Uh, it doesn't take much brain effort to understand how, actually. They had over $15B revenue. It's clear that they are making the profits they made from other product lines (iPhone/iPods, applications, etc.) to break into the tablet market.

Brilliant strategy in my opinion. Sacrifice some profit to completely fuck over the established competition.

Right now, prior to the advent of the HTML5 spec, which will make it much harder for Apple to take a cut of software and content distribution on the platform, Apple can afford to give away the hardware because it's taking a cut of iTunes, App Store, and iBook sales.

I can't see how the advent of HTML5 has anything to do with the iTunes/App/iBook store. Are people going to start buying music through HTML5? Or iPad apps? Or eBooks?

Originally posted by SalsaGuy:other tablets are already more than competitive in specs, availability of content and software and other areas. It should be simple enough to tune down the specs and get in under the higher-priced iTab models.

The cheapest Atom based multitouch tablet is $469, and it's smaller screened, lower resolution, and lower battery life.

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If they can get subsidized pricing like with many netbooks, there's no way that other tablet manufacturers wouldn't be able to blow the $500 price point out of the water, with better specs and features to boot.

How pray tell? The netbook is the price/performance floor and that means a minimum of $300, and it gets approximately half the battery life. If you boost the battery life you boost the price or reduce the performance to below that of the iPad.

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Of course, that begs the question of what the market for these tablets is actually like, I have a feeling that it's not as big as apple thinks it is, especially with the price point and features banging strongly into netbook territory, and already crowded and highly competitive market with much more to offer in terms of features and lower prices

If you mean netbooks, yes. If you mean multitouch tablets, Apple is seriously undercutting all the serious tablets: $660 for a 10.2" S1 slate, $670 for an HP Pavilion tx2510us, $750 for a used Gigabyte T1028 tablet PC...

Originally posted by LavosPhoenix:Hopefully this means that Asus's Android? and Tegra2 Tablet will be cheap just like their EeePC offerings. It'll probably have wifi, SD slot and at least one USB port, plus the screen might be widescreen instead of the iPad's ridiculous 4:3 screen.

You do realise that you'll still be able to watch 16:9 movies at a very reasonable size, you'll just have bigger black bars than on the crappy screen of a netbook (which will have black bars on too)?

Honestly, at this size, I don't see how a wide aspect ratio would be all that useful, beyond simply avoiding black bars in video playback and/or looking "modern." It's not like the vertical (or for that matter, horizontal) resolution when in landscape mode is sufficiently high to have, for example, two pages opened side-by-side.

Originally posted by entanglebit:"This sacrifice is an acknowledgment by Apple that it has to go out and create a market for a device that people don't yet know they need."

If people don't yet know they need it, then they don't need it.

Like the iPod, right? Or the iPhone?

Selling things to people who don't know they need it is a classic blue ocean strategy.

I agree. That's never stopped them before.

And to the people who are saying that the other tablets are capable of so much more, I was thinking along those lines as well, up until a post or two ago, honestly. All it will take is some innovative apps to give these iPads the capabilities they need to compete, which I think is what Apple is banking on. And if history tells us anything, it will probably work.

And just to put it out there, I don't own any Apple products, so please don't think me a "fanboi". It's wayyyy to the contrary.

Originally posted by LavosPhoenix:Hopefully this means that Asus's Android? and Tegra2 Tablet will be cheap just like their EeePC offerings. It'll probably have wifi, SD slot and at least one USB port, plus the screen might be widescreen instead of the iPad's ridiculous 4:3 screen.

Actually, widescreen would kind of suck for the iPad. 16:9 is a fine aspect ratio for doing things, but 9:16 (a widescreen held vertically) is way too skinny; a 10-inch screen at 9:16 is only a little over five and a half inches wide.